Putnam
Intermediate
Tax Exempt
Fund
[Graphic]
SEMIANNUAL REPORT
March 31, 1995
[Logo scales]
B O S T O N * L O N D O N * T O K Y O
<PAGE>
Performance highlights
> "The best-performing funds in the first quarter were muni funds. . .
In addition to the improved interest-rate outlook, municipal bonds are
benefiting from a shrinkage of available supply."
--The Wall Street Journal, "Mutual Funds Quarterly Review," 4/5/95
> "The historically cyclical nature of the bond market suggests that the
period directly after a downturn is an ideal time in which to put new money
into bonds: Yields are higher and prices are lower."
--SmartMoney, April 1995
> Performance should always be considered in light of a fund's investment
strategy. Putnam Intermediate Tax Exempt Fund is designed for investors
seeking high current income free from federal income taxes, consistent with
capital preservation.
SEMIANNUAL RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Class A Class B
Total return NAV POP NAV CDSC
<S> <C> <C> <C> <C>
(change in value
during period plus
reinvested
distributions)
6 months ended
3/31/95 1.58% -1.76% 1.28% -1.68%
Class A Class B
Share value NAV POP NAV
9/30/94 $8.23 $8.51 $8.24
3/31/95 8.13 8.40 8.14
Distributions:(1) No. Income Total
Class A 6 $0.223769 $0.223769
Class B 6 0.199952 0.199952
Current return NAV POP NAV
End of period
Current dividend
rate(2) 5.54% 5.36% 4.94%
Taxable equivalent(3) 9.36 8.87 8.18
Current 30-day SEC
yield(4) 5.29 5.12 4.64
Without expense
limitation 4.83 4.67 4.17
Taxable equivalent(3) 8.76 8.48 7.68
Without expense
limitation 8.00 7.73 6.90
</TABLE>
Performance data represent past results and reflect an expense limitation in
effect during the period. Without the limitation, results would have been
lower. For performance over longer periods, see page 8. POP assumes 3.25%
maximum sales charge. CDSC assumes 3% maximum contingent deferred sales
charge.(1) For some investors, investment income may be subject to the
federal alternative minimum tax. Investment income may be subject to state
and local taxes.(2) Income portion of most recent distribution, annualized
and divided by NAV or POP at end of period.(3) Assumes maximum 39.6% federal
and state tax rate. Results for investors subject to lower tax rates would
not be as advantageous.(4) Based only on investment income, calculated using
SEC guidelines.
<PAGE>
From the Chairman
[Graphic - photo of George Putnam]
(c) Karsh, Ottawa
Dear Shareholder:
The municipal bond market's volatile environment in 1994 has finally given
way to a more agreeable climate. During the first quarter of calendar 1995,
the market made impressive gains. Its exuberant performance during the
quarter helped offset some of the declines experienced in the fall,
contributing to the fund's positive results for class A and class B shares at
net asset value for the semiannual period ended March 31, 1995.
Tax-conscious investors finally seemed ready to concede that the Federal
Reserve Board's sustained boost in short-term interest rates throughout 1994
is having the desired dampening effect on inflation without choking off
economic growth. The expectation of sharply reduced volume in new bonds
coming to market in 1995 raised the prospect of brisk demand, and higher
prices, for existing issues.
As your fund moves into the second half of fiscal 1995, it will be guided by
Michael Bouscaren, who recently returned to Putnam after an eight-year
sojourn at Salomon Brothers. In the report that follows, Mike reviews the
fund's six-month performance and what he sees in store for the remainder of
the fiscal year.
Respectfully yours,
[Signature of George Putnam]
George Putnam
Chairman of the Trustees
May 17, 1995
<PAGE>
Report from the fund manager
Michael F. Bouscaren
Market volatility has remained a major influence in the performance of Putnam
Intermediate Tax Exempt Fund throughout its brief life. Despite strong
fundamentals, such as favorable supply/demand dynamics and attractive
tax-equivalent yields, investors continued to shun municipal bonds over much
of the semiannual period ended March 31, 1995. However, even as events such
as the Federal Reserve Board's sixth rate increase in November and the Orange
County bankruptcy in December exacerbated the situation, we remained
convinced that a turnaround was relatively close at hand.
Our expectations were on target. The market's strength returned in January as
investors embraced both the new year and the Fed's decision to increase rates
in February by another half a percentage point. The ensuing rally signaled
investors' renewed confidence in the Fed's ability to curb inflation and
successfully bring economic growth to more moderate levels. The long-
anticipated supply/demand imbalance has also begun to materialize; the supply
of new issues is down by approximately 60% from this time last year.
Most fixed-income investments have enjoyed a spectacular year-to-date rally,
with bond prices rising and yields declining virtually across the board, in
some cases by as much as a full percentage point. Your fund has been among
the beneficiaries, although it is still overcoming 1994's disappointing
results.
> INTERMEDIATE MUNICIPAL BONDS: BUILT-IN WIN-WIN POTENTIAL
Intermediate municipal bonds can be an appealing alternative to longer-term
bonds for conservative investors who desire both attractive tax-free income
and greater relative price stability. These bonds can often provide as much
as 80% of the yield of longer-term bonds and have, historically, experienced
much less price volatility.
<PAGE>
One of the most important reasons why your fund exhibits attractive yield and
price stability characteristics is the inverse relationship between the
fund's average maturity and duration to interest rate movements. While
short-term interest rates tend to fluctuate more than long-term rates,
longer-term bond prices typically react more sharply to rate swings than
prices of shorter-term bonds. Consequently, with a current average maturity
of 6.6 years and average duration of 4.8 years, your fund may not appreciate
as significantly as a longer-term municipal bond fund when the market
rallies, but it does offer the built-in ability to cushion market declines in
a rising interest rate environment, as it demonstrated in calendar 1994.
> ATTRACTIVE INCOME FROM A QUALITY BOND
PORTFOLIO
Throughout the period, the fund fulfilled its primary objective of providing
investors with a steady stream of attractive tax-free income. A taxable
investment at the maximum federal income tax rate of 39.6% would have had to
provide a current return of 9.36% to equal the fund's 5.54% current dividend
rate for class A shares at net asset value, or 8.18% to equal the 4.94%
dividend rate for class B shares. Investors in lower tax brackets may also
benefit from tax-exempt investing, but not to the same extent.
[Vertical Bar Chart]
A DECLINE IN SUPPLY
1/94 977
2/94 961
3/94 1056
4/94 782
5/94 986
6/94 1008
7/94 751
8/94 865
9/94 774
10/94 867
11/94 870
12/94 868
1/95 584
2/95 573
3/95 687
Chart shows monthly volume of municipal bond issuance. Source: Securities
Data Co. Used by permission.
[End of Vertical Bar Chart]
<PAGE>
In addition to high current income, your fund also offers a portfolio with
heavy exposure to investment-grade bonds, those having a credit quality
rating of BBB or above. At period's end, 99% of the bonds in your fund's
portfolio were investment grade; the average credit quality was A.
> MAXIMIZING TOTAL RETURN POTENTIAL
AND DIVERSIFICATION BENEFITS
In structuring the fund's portfolio, we strive to maximize total return
potential by seeking the best balance of credit quality, yield, relative
price stability, and geographic diversification.
While all municipal bonds were hit hard by the dramatic sell-off that
occurred during October and November, those rated AAA and AA bore the brunt
of the price declines. Nervous investors rushed to liquidate high-quality
holdings, so much so that the yield spread between AAA and BBB issues
narrowed considerably. This made the prices of AAA and AA bonds too
compelling to ignore.
Bonds at the higher end of the investment-grade spectrum tend to appreciate
the most quickly in market recoveries. So, in anticipation of an eventual
market turnaround, we built up holdings of higher-quality bonds, taking
advantage of their attractively low prices. We raised the fund's position in
AAA- and AA-rated bonds from 20.6% and 6.5% of net assets, respectively, as
of September 30, 1994, to 22.1% and 17.1% as of March 31, 1995.
To make this shift, we decreased the fund's exposure to A- and BBB- rated
issues from 47.6% and 41.3% of net assets on September 30, 1994, to 15.3% and
36.5%, respectively, on March 31, 1995. Although lessened, the fund's
emphasis on bonds in these rating categories remains substantial because
these holdings help boost income potential and contribute to price stability.
The portfolio's bent toward premium-coupon bonds also helps stabilize net
asset value. At 7.30%, the fund's average coupon is currently higher than the
market.
We've also invested the fund's assets across several sectors of the municipal
market around the nation, contributing to the portfolio's overall diversity.
With minor modifications, utilities, municipal agencies and political
subdivisions, and hospitals continued to be the fund's top industry sectors
throughout the period.
<PAGE>
[Horizontal Bar Chart]
TOP INDUSTRY SECTORS*
Utilities 20.1%
Political Sub-Division 16.6%
Hospitals 16.1%
Water & Sewer 9.1%
Housing 8.8%
*Based on a percentage of net assets on 3/31/95. Industry diversification
will vary over time.
[End of Horizontal Bar Chart]
> NEAR TERM APPEARS BRIGHT, BUT LONGER TERM LOOKS BRIGHTER STILL
All markets move in cycles, and municipal bonds have indeed enjoyed a
long-awaited rally over the past three months. If the Fed can engineer a
"soft landing" with contained inflation and moderate economic growth, we
expect the municipal market to respond favorably in the months ahead.
However, we recognize that uncertainty still lingers; there exists the very
real possibility that stronger-than-expected inflationary and economic data
could be forthcoming, pressuring the Fed to raise rates again.
Nevertheless, given the ongoing decline of new-issuance supply and growing
investor demand for tax relief, we believe conditions for investing in
municipal bonds over the longer term remain particularly bright. As more
investors continue to chase fewer bonds, municipal bond prices have the
potential to appreciate handsomely. The dialogue in Washington regarding tax
reform also contributes to the positive backdrop; to the extent tax-cut
initiatives are conditioned by progress in spending reduction, investors
should regain confidence in the government's ability to put its house in
order. If so, we could see continuing rallies in the municipal bond market --
and renewed strength throughout the entire fixed-income universe.
The views expressed in this report are exclusively those of Putnam
Management, and are not meant as investment advice. Although the described
holdings were viewed favorably as of 3/31/95 there is no guarantee the fund
will continue to hold these securities in the future.
<PAGE>
Performance summary
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares changed
over time, assuming you held the shares through the entire period and
reinvested all distributions back into the fund. We show total return in two
ways: on a cumulative long-term basis and on average how the fund might have
grown each year over varying periods. For comparative purposes, we show how
the fund performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 3/31/95
<TABLE>
<CAPTION>
Lehman Bros.
Class A Class B Municipal
NAV POP NAV CDSC Bond Index CPI
<S> <C> <C> <C> <C> <C> <C>
6 months 1.58% -1.76% 1.28% -1.68% 5.54% 1.34%
Life of class 0.56 -2.76 0.16 -2.72 5.61 2.64
</TABLE>
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions. The fund began operations on June 1,
1994, offering class A and class B shares. Performance data represent past
results, reflect an expense limitation in effect during the period, and will
differ for each share class. Investment returns and principal value will
fluctuate so an investor's shares, when sold, may be worth more or less than
their original cost.
<PAGE>
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 3.25% sales charge.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 3% maximum during the first year to
1% during the fourth year. After the fourth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the municipal
bond market. The index does not take into account brokerage commissions or
other costs, may include bonds different from those in the fund, and may pose
different risks than the fund.
Consumer Price Index is a commonly used measure of inflation; it does not
represent an investment return.
<PAGE>
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the relationship
between an investment's potential rewards and its accompanying risks. Given
the cautionary nature of such instructions, it may take most investors a
while to realize that risk has a positive side.
Every risk signals a potential reward. Selecting only those investments that
offer the greatest degree of security generally leads to only modest rewards.
Furthermore, even insured or guaranteed investments may be subject to changes
in their rates of return or, in some cases, in their principal values.
Experienced investors know that no investment is truly risk free and are
therefore willing to take on some measure of risk in order to increase their
potential gains.
The greater the risk, the greater the potential reward.
Accepting an appropriate level of investment risk can give you a
> A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds, this
is a measure of how sensitive a fund's holdings are to changes in general
market conditions. Remember, though, that securities that lose value quickly
in market declines may also show the strongest gains in more favorable
environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this type
of risk is a particular concern for fixed-income investors. However,
interest-rate increases can also have a substantial negative effect on the
stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your
money will begin to lose its purchasing power. Stock investments are
generally considered among the best ways of addressing inflation risk over
the long term.
<PAGE>
better chance of outpacing inflation over time and seeking to maximize your
investment's return. How much risk? Your
financial advisor's feedback and your time horizon can make all the
difference in determining how much risk is compatible with your investment
goals and your peace of mind.
> FITTING YOUR FUND SELECTION TO YOUR
RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards. It's helpful to understand the types of risks that can
apply to different types of investments, and to look at your own portfolio
with this perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-
rate, credit, and prepayment risks carefully. Within each of Putnam's four
investment categories, you can select funds with differing levels of risk and
reward potential to customize your portfolio.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the security's
issuer will not be able to meet its payment, while prepayment risk involves
the premature payoff of a loan, with a resulting loss of interest income.
Professional management and in-depth research are invaluable in managing both
these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at
their perceived market values. Liquidity risk can affect the price of
securities held in the fund's portfolio and, thus, the fund's share prices.
This list covers only the most general types of risks; however, each
investment will also have its own specific risks. You will find a more
detailed discussion of these risk considerations in each fund's prospectus.
<PAGE>
Portfolio of investments owned
March 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (94.8%)*
PRINCIPAL AMOUNT RATINGS** VALUE
California (13.2%)
$ 500,000 Central Valley Fing. Auth. Rev. Bonds (Carson Ice-
Cogeneration Project), 5.8s, 7/1/04 BBB $490,000
445,000 Los Angeles Cnty., Certif. of Participation (Marina Del
Rey), Ser. A, 6-1/4s, 7/1/03 BBB/P 445,000
500,000 Oro Loma San. Dist. Swr. Rev. Bonds Ser. A, American
Municipal Bond Assurance Corp. (AMBAC), 8.55s, 10/1/06 AAA 593,750
-----------
1,528,750
Colorado (6.1%)
Denver City & Cnty. Arpt. Rev. Bonds
250,000 Ser. A, 7.4s, 11/15/05 Baa 260,937
250,000 Ser. B, 7s, 11/15/02 Baa 250,313
200,000 Ser. B, 7s, 11/15/01 Baa 200,250
----------
711,500
Florida (4.5%)
500,000 Escambia Cnty. Hsg. Fin. Auth. Single Fam. Mtge. Rev.
Bonds 6.6s, 10/1/12 AAA 518,750
Georgia (3.8%)
400,000 Burke Cnty. Dev. Auth. Poll. Cntrl. Rev. Bonds (Oglethoroe
Pwr. Co.- Vogtle Project) Municipal Bond Insurance
Association (MBIA) 7-1/2s, 1/1/03 AAA 439,000
Louisiana (4.7%)
500,000 New Orleans Pub. Impt. Rev. Bonds Financial Security
Assurance, 8-1/8s, 10/1/03 AAA 549,375
Massachusetts (7.7%)
440,000 MA State Hlth. & Edl. Facs. Auth. Rev. Bonds (MA Eye &
Ear Infirmary), Ser. A, 7s, 7/1/01# Baa 432,850
400,000 South Essex Swr. Dist. Rev. Bonds Ser. B, MBIA 7-1/2s,
6/1/04 AAA 460,500
-----------
893,350
Mississippi (4.9%)
600,000 Rankin Cnty. Indl. Dev. Rev. Bonds (Yellow Fght. Sys.
Inc. Project), 5-3/4s, 10/1/08 A 569,250
New Jersey (4.0%)
500,000 NJ Hlth. Care Facs. Fing. Auth. Rev. Bonds (Union Hospital/
Mega Care Inc.), 5-1/2s, 7/1/03 Baa 466,875
New York (13.4%)
575,000 NY City, G.O. Bonds, Ser. D, Group A, 8s, 8/1/03 A 637,531
500,000 NY State Dorm Auth. Rev. Bonds (City University), Ser.
A,
8-1/8s, 7/1/07 BBB 544,375
340,000 NY State Med. Care Facs. Fin. Agcy. Rev. Bonds (Mental
Hlth. Svcs.) Ser. A, 8-7/8s, 8/15/07 Baa 372,725
-----------
1,554,631
Ohio (8.2%)
400,000 Cuyahoga Cnty. Hosp. Rev. Bonds (Merida Health Systems),
6.2s, 8/15/05 A 413,000
500,000 Gateway Econ. Dev. Corp. Rev. Bonds 7.2s, 9/1/01 Baa 536,875
-----------
949,875
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
Oklahoma (1.6%)
$170,000 Tulsa, Indl. Auth. Hosp. Rev. Bonds (Tulsa Regl. Med.
Ctr.),
Ser. A, 7-5/8s, 6/1/06 BBB $184,663
Puerto Rico (4.3%)
450,000 Cmnwlth. of Puerto Rico, Urban Renewal & Hsg. Corp. Rev.
Bonds 7-7/8s, 10/1/04 Baa 500,625
Texas (6.4%)
550,000 Amarillo Indpt. School Dist. Rev. Bonds 7.85s, 2/1/04 AA 591,250
150,000 Dallas Civic Ctr. Convention Complex Sr. Lien Rev. Bonds
8-1/2s, 1/1/04 A 153,750
-----------
745,000
Washington (12.0%)
1,300,000 WA State Pub. Pwr. Supply Syst., Rev. Bonds(Nuclear project
No. 1) Ser. A, Ser. A, 7-1/2s, 7/1/07 AA 1,399,125
-----------
Total Investments (cost $10,691,845)*** $11,010,769
</TABLE>
* Percentages indicated are based on net assets of $11,618,447, which
correspond to a net asset value per class A and class B share of $8.13 and
$8.14, respectively.
*** The aggregate identified cost on a tax cost basis is $,10,691,845
resulting in gross unrealized appreciation and depreciation of $329,790 and
$10,866 repectively, or net unrealized appreciation of $318,924.
** The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at March 31, 1995 for the securities listed.
Ratings are generally ascribed to securities at the time of issuance. While
the agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings do not necessarily represent what the
agencies would ascribe to these securities at March 31, 1995. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
# A portion of this security was pledged to cover margin requirements for
futures contracts at March 31, 1995. The market value of segrated securities
with the custodian for transactions on futures contract is $432,850.
U.S. Treasury Bond Futures Outstanding at March 31, 1995
<TABLE>
<CAPTION>
Total Aggregate Expiration Unrealized
Value Face Value Date Depreciation
<S> <C> <C> <C> <C>
U.S. Treasury Note Future (Sell) $519,531 $515,000 June 95 ($4,531)
The Fund had the following group concentrations greater than 10% at March 31,
1995 (as a percentage of net assets):
Utilities 20.1%
Political Subdivision 16.6
Hospitals 16.1
</TABLE>
The table below shows the percentages of the fund's investments at March 31,
1995 in securities assigned to the various rating categories by Moody's and
Standard & Poor's and in unrated securities determined by Putnam Investment
Management, Inc. to be of comparable quality.
<TABLE>
<CAPTION>
Rated securities, Unrated securities of
as a percentage of comparable quality, as a
Rating fund's net assets percentage of fund's net assets
<S> <C> <C>
"AAA"/"Aaa" 22.1% -- %
"AA"/"Aa" 17.1 --
"A"/"A" 15.3 --
"BBB"/"Baa" 36.5 3.8
91.0% 3.8%
</TABLE>
<PAGE>
Statement of assets and liabilities
March 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments in securities, at value (identified cost $10,691,845) (Note 1) $11,010,769
Cash 280,315
Interest and other receivables 223,641
Receivable from Manager (Note 2) 31,495
Receivable from variation margin on short futures 1,250
Receivable for shares of the fund sold 137,767
Unamortized organization expenses (Note 1) 75,528
Total assets 11,760,765
Liabilities
Payable for shares of the fund repurchased $ 14,691
Distributions payable to shareholders 18,758
Payable for organization expenses (Note 1) 77,750
Payable for administrative services (Note 2) 26
Payable for compensation of Trustees (Note 2) 78
Payable for distribution fees (Note 2) 5,436
Other accrued expenses 25,579
Total liabilities 142,318
Net assets $11,618,447
Represented by
Paid-in capital (Note 4) $11,710,549
Undistributed net investment income 1,061
Accumulated net realized loss on investment transactions and futures (407,556)
Net unrealized appreciation of investments and futures 314,393
Total--Representing net assets applicable to capital shares outstanding $11,618,447
Computation of net asset value and offering price
Net asset value and redemption price of class A shares
($7,145,225 divided by 879,024 shares) $8.13
Offering price per class A share (100/96.75 of $8.13)* $8.40
Net asset value and redemption price of class B shares
($4,473,222 divided by 549,599 shares)+ $8.14
</TABLE>
* On single retail sales of less than $25,000. On sales of $25,000 or more
and on group sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of operations
Six months ended March 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Tax exempt interest income: $ 329,760
Expenses:
Compensation of Manager (Note 2) $ 30,377
Compensation of Trustees (Note 2) 504
Auditing 11,090
Legal 15,834
Amortization of organization expense (Note 1) 1,914
Reports to shareholders 34,572
Investor servicing and custodian fees (Note 2) 2,618
Registration fees 3,567
Distribution fees--Class A (Note 2) 4,784
Distribution fees--Class B (Note 2) 14,676
Postage 353
Other expenses 152
Fees waived by Manager (Note 2) (65,027)
Total expenses 55,414
Net investment income 274,346
Net realized loss on investments (Note 3) (261,857)
Net realized loss on futures (70,250)
Net unrealized appreciation of investments and
futures during the period 344,223
Net gain on investment transactions 12,116
Net increase in net assets resulting from
operations $ 286,462
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
June 1, 1994
Six months (commencement of
ended operations) to
March 31 September 30
1995* 1994
<S> <C> <C>
Increase in net assets
Operations:
Net investment income $ 274,346 $ 70,084
Net realized loss on investments and futures (332,107) (75,449)
Net unrealized appreciation (depreciation) of
investments and futures 344,223 (29,830)
Net increase (decrease) in net assets resulting from
operations 286,462 (35,195)
Distributions to shareholders from:
Net investment income
Class A (175,195) (42,275)
Class B (96,817) (27,809)
In excess of net investment income
Class A -- (608)
Class B -- (665)
Increase from capital share transactions (Note 4) 4,440,522 7,170,027
Total increase in net assets 4,454,972 7,063,475
Net assets
Beginning of period 7,163,475 100,000
End of period (including undistributed net investment
income and distributions in excess of net investment
income of $1,061 and $1,273 respectively). $11,618,447 $7,163,475
</TABLE>
* Unaudited.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
June 1, 1994 June 1, 1994
(commencement (commencement
Six months of operations) Six months of operations)
ended to ended to
March 31 September 30 March 31 September 30
1995* 1994 1995* 1994
Class B Class A
<S> <C> <C> <C> <C>
Net asset value,
Beginning of period $ 8.24 $ 8.50 $ 8.23 $ 8.50
Investment operations
Net investment income .20(a) .17(a)(b) .23(a) .18(a)(b)
Net realized and unrealized
loss on investments (.10) (.26) (.11) (.27)
Total from investment Operations .10 (.09) .12 (.09)
Less distributions:
From net investment income (.20) (.17) (.22) (.18)
Total distributions (.20) (.17) .22) (.18)
Net asset value, end of period $ 8.14 $ 8.24 $ 8.13 $ 8.23
Total investment return at net
asset value (%) (c) 1.28(d) (1.11)(d) 1.58(d) (1.01)(d)
Net assets, end of period
(in thousands) $4,473 $2,926 $ 7,145 $ 4,237
Ratio of expenses to average net
assets (%) .73(a)(d) .17(a)(d) .42(a)(d) (.05)(a)(d)
Ratio of net investment income to
average net assets (%) 2.49(a)(d) 1.73(a)(d) 2.79(a)(d) 1.89(a)(d)
Portfolio turnover (%) 122.21(d) 122.90(d) 122.21(d) 122.90(d)
</TABLE>
* Unaudited.
(a) Reflects an expense limitation applicable during the period. As a result
of such a limitation, expenses of the fund for the six months ended March 31,
1995 and the period ended September 30, 1994 reflect per share reductions of
approximately $0.07 and $0.05 for Class A shares respectively, and $0.12 and
$0.06 for Class B shares, respectively.
(b) Per share net investment income for the period ended September 30, 1994
has been determined on the basis of the weighted average number of shares
outstanding during the period.
(c) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(d) Not annualized.
<PAGE>
Notes to financial statements
March 31, 1995 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The fund seeks as
high a level of current income exempt from federal income tax as Putnam
Management believes is consistent with preservation of capital by investing
primarily in a portfolio of tax exempt securities.
The fund offers both class A and class B shares. Class A shares are sold with
a maximum front-end sales charge of 3.25%. Class B shares do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than class
A shares, and may be subject to a contingent deferred sales charge if those
shares are redeemed within four years of purchase. Expenses of the fund are
borne pro-rata by the holders of both classes of shares, except that each
class bears expenses unique to that class (including the distribution fees
applicable to such class). Each class votes as a class only with respect to
its own distribution plan or other matters on which a class vote is required
by law or determined by the Trustees. Shares of each class would receive
their pro-rata share of the net assets of the fund, if the fund were
liquidated. In addition, the Trustees declare separate dividends on each
class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A) Security valuation Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value.
B) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
C) Futures A futures contract is an agreement between two parties to buy and
sell a security at a set price on a future date. Upon entering into such a
contract, the fund is required to pledge to the broker an amount of cash or
tax-exempt securities equal to the minimum "initial margin" requirements of
the futures exchange. Pursuant to the contract, the fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation
margin," and are recorded by the fund as unrealized gains or losses. When the
contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The potential risk to the fund is that
the change in value of the underlying securities may not correspond to the
change in value of the futures contracts.
<PAGE>
D) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
E) Distributions to shareholders Income dividends are recorded daily by the
fund and are distributed to the shareholders monthly. Capital gains
distributions, if any, are recorded on the ex-dividend date and paid
annually, or as necessary to meet the distribution requirements described
above . The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
F) Amortization of bond premium and discount Any premium resulting from the
purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. Discount on zero-coupon bonds original issued
discount T bonds and step-up bonds are accreted according to the effective
yield method.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states, and the initial public offering
of its class A and class B shares aggregated $77,750. These expenses are
being amortized over a five-year period based on current net asset levels.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Investment Management Inc., the fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc., for management and
investment advisory services is paid quarterly based on the average net
assets of the fund for the quarter. Such fee is based on the following annual
rates: 0.60% of the first $500 million of average net assets, 0.50% of the
next $500 million, 0.45% of the next $500 million and 0.40% of any amount
over $1.5 billion, subject to reduction in any year to the extent of certain
brokerage commissions and fees (less expenses) received by affiliates of the
Manager on the fund's portfolio transactions.
Until the date the net assets of the fund exceed $100,000,000 or June 1,
1995, whichever comes first, the Manager has agreed to reduce its
compensation to the extent that expenses of the fund exceed 0.80% of average
net assets. The fund's expenses subject to this limitation are exclusive of
brokerage, interest, taxes deferred organizational and extraordinary expenses
and payments required under the fund's Distribution Plans. This limitation is
accomplished by a reduction of the compensation payable to the Manager and,
if necessary, payment of additional fund expenses by the Manager.
The fund also reimburses the Manager for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
<PAGE>
Trustees of the fund receive an annual Trustee's fee of $100 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary Trust
Company (PFTC), a subsidiary of the Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended March 31, 1995 have been reduced by credits allowed
by PFTC.
The fund has adopted distribution plans (the "Plans") with respect to its
class A shares and class B shares pursuant to Rule 12B-1 under the Investment
Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual
Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for
services provided and expenses incurred by it in distributing shares of the
fund. The Trustees have approved payment by the fund at an annual rate of 0.15%
and 0.75% of the average net assets attributable to class A and class B shares,
respectively.
During the six months ended March 31, 1995, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $3,651 from the sale of class A
shares and $4,262 in contingent deferred sales charges from redemptions of
class B shares of the fund. A deferred sales charge of up to 1% is assessed
on certain redemptions of class A shares purchased as part of an investment
of $1 million or more. For the six months ended March 31, 1995, Putnam Mutual
Funds Corp., acting as underwriter received no monies on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended March 31, 1995, purchases and sales of investment
securities other than short-term municipal obligations aggregated
$14,613,611 and $13,642,585, respectively. In determining the net gain or
loss on securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At March 31, 1995 there was an unlimited number of shares of beneficial
interest authorized divided into two classes of shares, class A and class B
capital stock. Transactions in capital shares were as follows:
<PAGE>
<TABLE>
<CAPTION>
June 1, 1994
(commencement of
operations) to
Six months ended March 31 September 30
1995 1994
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 662,966 $5,269,221 577,132 $4,821,888
Shares issued in
connection with
reinvestment of
distributions 13,129 105,196 3,463 28,725
676,095 5,374,417 580,595 4,850,613
Shares repurchased (311,730) (2,492,219) (71,818) (603,138)
Net increase 364,365 $2,882,198 508,777 $4,247,475
</TABLE>
<TABLE>
<CAPTION>
June 1, 1994
(commencement of
operations) to
Six months ended March 31 September 30
1995 1994
Class B Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 300,800 $2,411,021 375,444 $3,138,621
Shares issued in
connection with
reinvestment of
distributions 7,388 59,182 1,938 16,076
308,188 2,470,203 377,382 3,154,697
Shares repurchased (113,798) (911,879) (28,055) (232,145)
Net increase 194,390 $1,558,324 349,327 $2,922,552
</TABLE>
<PAGE>
Our commitment to quality service
> CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal for
the past five years. The award is presented annually by DALBAR Inc., an
independent firm that monitors and evaluates the quality of service provided
by mutual fund companies throughout the United States. During 1994, DALBAR
ranked firms by conducting 80,000 anonymous performance evaluations based on
55 service components.
> HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from
a Putnam fund or from your own checking or savings account.*
> SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or
termination.)
> ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative.
> To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number: 1-800-225-1581.
*Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to
continue purchasing shares during periods of low price levels.
<PAGE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Michael F. Bouscaren
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Intermediate Tax
Exempt Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales charges,
investment objectives and operating policies of the fund, and the most recent
copy of Putnam's Quarterly Performance Summary. For more information or to
request a prospectus, call toll free 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other
agency, and involve risk, including the possible loss of principal amount
invested.
<PAGE>
Bulk Rate
U.S. Postage
PAID
Boston, MA
Permit No. 53749
155/341-17775
[PUTNAM INVESTMENTS logo]
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) are omitted.
(3) Certain tabular and columnar headings and symbols are displayed
differently in this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Trademark symbol replaced with (TM)
